Clark Leasing Corp. v. White Sands Forest Products, Inc.

Decision Date07 May 1975
Docket NumberNo. 9977,9977
Parties, 10 A.L.R.4th 404, 16 UCC Rep.Serv. 1442 CLARK LEASING CORPORATION, a Delaware Corporation, Plaintiff- Appellant, v. WHITE SANDS FOREST PRODUCTS, INC., a New Mexico Corporation, formerly known as La Luz Lumber Company, Defendant-Appellee.
CourtNew Mexico Supreme Court
Shipley, Durrett, Conway & Sandenaw, Thomas A. Sandenaw, Alamogordo, for plaintiff-appellant


Plaintiff-appellant (Clark) appeals a judgment on a jury verdict which denied it recovery of a deficiency judgment sought under Article Nine of the New Mexico Uniform Commercial Code, Sections 50A--9--501 to 507, N.M.S.A.1953 (hereinafter §§ 9--501 to 507). In 1969, defendant-appellee (White Sands) purchased certain logging equipment (skidders) from Clark's contract assignor under a conditional sales contract. After making certain payments, White Sands defaulted. In September, 1970, appellant repossessed the equipment at White Sands' request and, some nine months later, conducted a public sale. White Sands was given notice of the sale as required under § 9--504(3). The claimed deficiency owing after allowing all just credits and offsets was $20,069.25. This figure was not in dispute.

Clark first argues that the court erred as a matter of law in allowing the defense of accord and satisfaction to go to the jury. We are concerned only with common law accord and satisfaction. See UCC § 1--103. Section 9--505(2) is not involved since none of the procedures there provided were utilized.

Based upon the pleadings and statements of counsel, we gather that it was White Sands' theory that Clark agreed to accept delivery of the skidders in full settlement of the former's indebtedness. Upon trial, there was not a shred of evidence of an accord, but that issue is raised for the first time here. Clark did assert at every stage of the proceedings, however, that there could be no accord because the debt was liquidated, its amount not being in dispute. Objection was made to the instruction submitting the issue to the jury on that ground. An accord is nothing more nor less than a contract of a specialized type. It is new contract and must be supported by a new consideration. In the case of a liquidated claim or demand, some consideration for the asserted release of the unpaid balance, apart from the payment of a lesser sum, must be found to support an alleged accord. Yates v. Ferguson, 81 N.M. 613, 471 P.2d 183 (1970). For that reason, our precedents hold that one of the prerequisites of a valid accord is that the claim or demand involved must be unliquidated, at least in the absence of a new and independent consideration. Frazier v. Ray, 29 N.M. 121, 219 P. 492 (1923). The court there said, by way of explanation:

'Where no dispute exists with regard to the sum due, no consideration exists to support the agreement of the creditor to receive less than the agreed sum, or to release the debtor from the unpaid portion thereof.' 29 N.M. at 123, 219 P. at 493.

See also Miller v. Prince Street Elevator Co., 41 N.M. 330, 68 P.2d 663 (1937); Buel v. Kansas City Life Ins. Co., 32 N.M. 34, 250 P. 635 (1926).

White Sands argues that New Mexico recognizes the common law precept that there can be an accord and satisfaction of a liquidated undisputed claim when there is additional consideration given, citing Yates v. Ferguson, 81 N.M. 613, 471 P.2d 183 (1970). It asserts that Clark was allowed to repossess the skidders with the understanding it would be in full settlement of the existing indebtedness under the contract and that this was sufficient new consideration. We are not persuaded, for the alleged understanding

'* * * shows nothing more than the attempted unilateral imposition without consideration of a condition contrary to the terms of the original contract recognizing the immediate right of repossession upon default. The defendant had already legally obligated himself to surrender possession upon default, and he agreed to do nothing more at the time of repossession. 'An agreement on the part of one to do what he is already legally bound to do is not a sufficient consideration for the promise of another.' (Citation omitted.)' Barnes v. Reliable Tractor Company, 117 Ga.App. 777, 778, 161 S.E.2d 918, 919 (1968).

Moreover, under § 9--503, Clark had the statutory right to self-help repossession if it could be done without 'breach of the peace.'

White Sands also argues sufficiency of a new consideration by its giving up the right under both the contract and § 9--504(2) to any surplus at resale of the equipment. But there is not the slightest intimation in the evidence that the alleged accord and satisfaction included White Sands relinquishing this contractual and statutory right.

For the reasons stated, accord and satisfaction was an insufficient defense as a matter of law. It was a false issue and it was reversible error to instruct on that theory. Reed v. Styron, 69 N.M. 262, 365 P.2d 912 (1961); Garcia v. Barber's Super Markets, Inc., 81 N.M. 92, 463 P.2d 516 (Ct.App.1969). Additional points raised by appellant require resolution since a new trial will be required.

More serious questions center on the requirement of § 9--504(3) that sale or other disposition of collateral by a secured party must be accomplished in a 'commercially reasonable' manner. Issues are presented as to which party bears the burden of proving that the manner of sale was, or was not, commercially reasonable, how commercial reasonableness is to be proven, and the effect of failure to dispose of collateral in that estimable, if elusive, fashion.

Sections 9--504(1) & (3) provide a creditor broad choices for disposing of repossessed collateral. 1 But § 9--504(3) also imposes two requirements upon a reselling creditor. First, he must send the debtor reasonable notification of impending sale, which Clark did in this case. Second, every aspect of the sale, including the 'method, manner, time, place and terms', must be 'commercially reasonable.' These requirements place upon the creditor the good faith duty to the debtor to use reasonable means to see that a reasonable price is received for the collateral. See Vic Hansen & Sons, Inc. v. Crowley, 57 Wis.2d 106, 203 N.W.2d 728 (1973); 2 G. Gilmore, Security Interests in Personal Property, § 44.5 at 1234 (1965); UCC § 1--203. As noted by Michigan Law Professor James J. White, the importance of a commercially reasonable sale

'* * * lies in the fact that the amount of the deficiency judgment will be inversely proportional to the sales price; if the price is high, the amount of the judgment will be low, and vice versa. The 'method, manner, time, place and terms' tests are really proxies for 'insufficient price,' and their importance lies almost exclusively in the extent they protect against an unfairly low price.' J. White & R. Summers, Uniform Commercial Code § 26--9 at 982 (1972).

We first consider the burden of proof, confining our comments to actions by secured creditors for deficiencies, as distinguished from actions, counterclaims or setoffs asserted by debtors. See Vic Hansen & Sons, Inc. v. Crowley, supra at 113 n. 4, 203 N.W.2d at 732 n. 4; Universal C.I.T. Credit Co. v. Rone, 248 Ark. 665, 668, 453 S.W.2d 37, 39 (1970); § 9--507(1).

In this case, both parties undertook the burden of proof, Clark in its opening statement and White Sands by pleading a want of commercial reasonableness as an affirmative defense. Each now stoutly asserts that the burden properly belongs to the other. We do not attach much significance to this state of the record. The case must be retried in any event so it might as well be done correctly.

It is scarcely a revelation to say that a plaintiff normally has the burden of proving his case. In light of the specific requirement of § 9--504(3) as to commercial reasonableness, it seems clear that a creditor, when suing for a deficiency, should allege and prove that disposition of the collateral was conducted in compliance with that statute. The issue would be formulated by a denial. While asserting that the debtor has the burden, Clark fails to cite a supporting case. We are of the opinion that in a case such as this, the creditor must allege and, unless admitted, prove that the sale was commercially reasonable. Vic Hansen & Sons, Inc. v. Crowley, supra; First National Bank of Bellevue v. Rose, 188 Neb. 362, 196 N.W.2d 507 (1972); Universal C.I.T. Credit Co. v. Rone, supra; Mallicoat v. Volunteer Finance & Loan Corp., 57 Tenn.App. 106, 415 S.W.2d 347 (1966). Of course, once a creditor has made a prima facie case indicating a commercially reasonable sale, the debtor may be required to elicit some evidence of commercial unreasonableness to avoid a directed verdict on the issue. But when this is done, it becomes a question for the trier of the facts. See Farmers Equipment Company v. Miller, 252 Ark. 1092, 482 S.W.2d 805 (1972).

The parties also differ as to what factors are relevant in determining commercial reasonableness. Obviously, each case will turn on its particular facts but recent decisions provide instructive reading. 2 Generally, evidence as to every aspect of the sale including the amount of advertising done, normal commercial practices in disposing of particular collateral, the length of time elapsing between repossession and resale, whether deterioration of the collateral has occurred, the number of persons contacted concerning the sale, and even the price obtained, is pertinent. See Beneficial Finance Co. of Black Hawk County v. Reed, 212 N.W.2d 454 (Iowa 1973); Farmers Equipment Company v. Miller, supra. In this case, evidence of this sort was adduced by both parties and, under proper instructions, it would probably have supported a verdict for either side. We turn to a consideration of whether the instructions were correct.

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